who's correct with electric company rpi increase...in there quote.

[jeffp67]

i have had a few solar panel quotes where one guy has said a ten percent year on year rise in electric one at 5% one at 7.% and this makes quite a bit of difference to my returns who do i believe and who's is the more accurate figures should they not all be using the same increase percentage does anyone know.......

 

[Ian-LS]

i have had a few solar panel quotes where one guy has said a ten percent year on year rise in electric one at 5% one at 7.% and this makes quite a bit of difference to my returns who do i believe and who's is the more accurate figures should they not all be using the same increase percentage does anyone know.......

Well electricity prices have risen by 9-10% for the last 8 or 9 years but it would be foolish to think this would happen for the next 20 years imo. We have prices rise by 8% for the next 5 years then 5% per year thereafter.

I would say the 5% rise is conservative, 7% per year is probably a decent estimate and the 9% figure is an overestimate

 

[SolarCity]

I think it is probably time that MCS gave a bit of guidance with things like this. No one knows what electricity prices are going to do and in my opinion we shouldn't even factor them into our calcs. But it seems to me that some companies use this a bit of slight of hand to make their particular quote seem like better value.

 

[The Solar King]

Figures are available on the DECC website. These are historic figures that are from time to time adjusted (re-writing history to make it less bad). From this data I use a 10 year average that comes out at 7.5%.

It should be noted that increases in the last five years have avaraged more than this, which is why I am comfortable with this figure.

DECC also have a forward projection which is a range over RPI/CPI. I do not use this as I believe it to be rather optimistic. They may also be counting on shale gas slowing the increase due to increased supply's has happened in the USA. This is complete vanity as the UK is a different kind of market.

Two other considerations on calculating returns. Firstly, at what price per kWh does the calculation start?

Secondly, has the cost of probably replacing the inverter during the life of the installation been built in? We build in a maintenance cost of £40.00 a year to cover this and other contingencies.

Members of the Solar Trade Association have access to a sophisticated online ROI calculator. If your quote has come from an STA member they have hopefully used this if they do not use PVSol software.

 

[Gavin A]

Well electricity prices have risen by 9-10% for the last 8 or 9 years but it would be foolish to think this would happen for the next 20 years imo. We have prices rise by 8% for the next 5 years then 5% per year thereafter.

I would say the 5% rise is conservative, 7% per year is probably a decent estimate and the 9% figure is an overestimate

to put more detail onto that...

the reason we use 8% for the next 5 years is because this has been slightly below the average for the last 7 years, and with the enforced switch from cheap but dirty coal to cleaner but more expensive (and rising rapidly) gas generation over the next few years running up to the 2016 shut down of around half of our coal generators, I can see no possible way that electricity prices aren't going to continue to rise by at least that amount for the next 5 years. The other key factor being the rapid reduction in north sea gas output, and increase in imports that's likely to mean 80% imports by 2018, and the import are mostly via LNG tankers which is far more expensive than just pumping gas ashore from the North Sea.

Beyond that point though it's much harder to be sure what's likely to happen once we effectively reach a par with world gas prices, so I wouldn't feel confident in predicting that prices would continue to rise at anything above 5% beyond that point, though this may well prove to be a conservative estimate.

Personally I actually expect electricity prices to go through the roof this year and for the next few years, as most of the dirty coal generators are actually planning to switch off in APril this year due to a carbon tax that comes into force then, which means they've essentially booked in their profits before it and will then shut up shop. Apparently (according to industry insiders at a course last week), several of the new gas generators are now effectively holding the government to ransom by refusing to connect to the grid until prices rise to a more sustainable level for them, so despite all the politicians blithering about reducing prices, I'd not be surprised at all to see a 15-20% rise across the board by the winter of 2013-14 in order to keep the lights on, with gas prices also going up significantly as gas consumption for electricity generation jumps 20% at the same time as north sea output falls by another 8-10% or so. Another insider from one of the big 6 suppliers said a few months back that they were expecting an 80% increase in electricity prices by 2015-16... make of that what you will.

Or to put it another way, in the immediate future at least, virtually all the price rise predictions used in solar estimates are very likely to prove exceptionally conservative, and anyone who's had a solar system installed at a decent price by a decent installer is very likely to be extremely glad they had it installed before energy prices really went through the roof.

 

[jeffp67]

just wanna say thanks for all the time you have devoted to my question fellas. appreciated......

 

[Berneray]

In Nov 2011 Parliament via the Energy Committe published a White Paper. The Title Was "The Age of Cheap Energy Is Over"

This is a summary of the Bullet Points:

• Gas and Electricity prices fell consistently during the 1980’s and 90’s due to competition
and price controls by the Regulator.
• By late 2000 they were 1/3rd below January 1987 levels and stayed low till early 2003.
• However since then they have increase year on year and by 2007 were 82% above the
2000 price.
• By Oct 2011 they were 115% above the 2000 low.


WHY DID GAS AND ELECTRIC PRICES INCREASE SO MUCH
• Sharp increases in the wholesale price of gas from the summer of 2005 onward.
• The huge increase in the barrel price of oil.
• The Big 6 Energy Companies increasing their margin.
• The massive investment needed for new electricity generation.
• VAT and Environmental Obligations.
• The decline of North Sea gas means the UK has had to join the European Gas
Interconnector for its gas.
• In 2004 the UK became a NET gas importer for the first time ever.


OUTLOOK
• According to Ofgem the two main causes of the increased price of domestic energy are
high oil prices and the decline of the UK’s gas supplies.
• It is therefore expected that we have entered into an era of constantly increasing energy
prices over which the government can exert little pressure.
• While projecting forward is always difficult it is expected that year on year increases of
between 5% and 8% can be expected.
• However as we are now part of the European Gas Interconnector which links the price of
gas to the price of oil will always leave the market open to “supply price surges” which we
have seen over the past few years and in 2005 and 2011 in particular

 

[FB.]

i have had a few solar panel quotes where one guy has said a ten percent year on year rise in electric one at 5% one at 7.% and this makes quite a bit of difference to my returns who do i believe and who's is the more accurate figures should they not all be using the same increase percentage does anyone know.......

If you're relying on a large unknown value to justify a half-decent return, maybe it's not a good idea.

 

[FB.]

I would suggest to not rely on the future unknowns, but to look at how the proposed purchase stands up right now.
How big is the system going to be?
Whereabouts in the country (nearest major town)?
Which direction will it face?
Roughly what’s the roof slope?
How much shading (if any)?
What kind of price ranges have been quoted?

 

[Gavin A]

• The decline of North Sea gas means the UK has had to join the European Gas
Interconnector for its gas.

good post, but this point (which I assume you've quoted right) is misleading. We've consistently been a net exporter to Europe through the interconnector because we've become the main European hub for landing LNG imports, so the majority of our imports are from LNG (or direct from norwegian fields), some of which we then reexport to the EU via the interconnector. Though occasionally we do import from Europe through it as well at peak times of UK demand - if Europe are feeling like exporting to us at the time.

 

[FB.]

For some reason I can’t get the “new line” <Enter>button to work, so I can’t post a well-laid-out reply – hence being in bits.

Consider this theoretical scenario.
System cost: £6000
Expected annual generation: 3000kWh
Expected in-house usage: 35% (12.5p per kWh electricity cost)
FiT rate: 15.4p
Export rate: 4.5p for 50% of generation.

3000kWh x 15.4p = £462 FiT
3000kWh x 4.5p x 50% = £67.50 Export
3000kWh x 35% x 12.5p = £131.25 bill savings
Total annual benefits: £660.75.

But, unlike a bank account, the money spent can never be “cashed-in”, and, most likely, the system will need some repairs at some point in its second decade of life.
So if we put the system lifespan at 20years (same as the FiT duration) we need to assume that in year 20 you’ve built up enough of a cash reserve to replace it (or repair it).
Therefore the system should have a “running cost” or “depreciation charge” of 1/20[SUP]th[/SUP] of its purchase cost, per year, to factor-in cost of repairs or replacement.
For a £6000 system that would be £300 “depreciation” per year.

So £660.75 expected earnings against £300 “depreciation” leaves £360.75 profit in year one.
£360.75 is a 6% net return per year, on the £6000 initial outlay.

These figures give an idea of the MINIMUM level of return on investment - so if it looks good on the minimum level right now, then it'll probably be fantastic in the longer term. Returns from a well-installed system are likely to be even better in the long run, since the FiT rate will be indexed to inflation and increase each year, the bill savings will get greater as time passes, and well-installed solar arrays tend to at least match the estimates, and typically exceed them by 5-15% depending on where in the country (mine is listed in my signature; 10% outperformance of SAP-2009 even in a bad year).

 

[Gavin A]

These figures give an idea of the MINIMUM level of return on investment.

This is exactly the sort of calculation the energy saving trust have done, and I disagree entirely with it.

I think it's entirely unrealistic to even consider figures that assume zero inflation for the next 20 years, and presents a misleading picture as a result.

I know you're saying it's a minimum, but it's nothing like a realistic minimum, certainly not when you consider that a significant portion of the returns are offset electricity, and there is less chance of a snowball surviving a close encounter with the sun then there is of energy prices not rising significantly in this country over the next 20 years.

There is virtually no other investment that is inflation linked in the way that solar PV is, so it obviously puts it in a falsely negative light if you choose to ignore that RPI link entirely when presenting the figures, when it's going to be getting compared with rates of return that have no inflation linking at all.

IMO

 

[Berneray]

Thanks Gavin....yes I just copies the info direct.

There's a great little app you can down load that tells in real time where our electricity is coming from...just search store for UK ENERGY....and right now 33% is coming from Gas fired power stations.....and an astonishing 44% from coal...16% from nuclear and 1.20% from Wind...point is we are importing the fuel for 77% of our electricity...

And my question to FB is.....Bearing in mind your financial analysis.....would you still instal your PV system given what you now know its capable of generating....

 

[Earthstore]

When I was actively selling systems I would only give returns for year one, then I would leave it up to the customer to work out the 25 year guesswork after explaining what index linked means, and pointing out what has happened with energy prices in the past, energy usage etc etc.
Also if the customer is sensible and uses more of his generation or all of it then the returns for 25 years would rise tremendously, whatever happens to the energy costs.


The reason why I did this is you could make that final figure/% (or how ever you choose to display it) whatever you want it to be, just by being a little generous on any of your assumptions then compound that by 25 years.

As FB will tell you, all investments have an element of risk, but to use so many assumptions to arrive at a final figure after 25 years is not much more than pure guess work.

If you are offering someone a 10% return, tax free on their investment for year one, that is index linked, and tied to energy costs, then that investment should only improve year on year.

Just my two penneth worth...

 

[The Solar King]

For information, the DECC assumption on fuel price inflation is 2.66% above inflation. This is interesting in itself. I do not know what proportion of the basket of goods used to calculate general inflation is electricity, as this in itself will influence RPI/CPI if there are disproportionate rises in energy costs. I am also unaware of how far in to the future this projection runs.

As there are so many unknowns, looking at returns on the installation of PV is problematic. This can then give reason to work on a zero inflation model. What is most important is that whatever model is used, it is understandable by the customer, and does not overstate the potential benefits.

This all gets tied up in the politics of energy supply. If DECC and the Government were completely honest about the likely real world costs householders may face in the next five years, there would be uproar. We would see heads rolling, a hunt for the guilty, punishment of the innocent, with blame apportioned to everyone and everything but the truth.

The true economics of differing methods of generation would also come under scrutiny with the truth hidden by the powerful vested interests.

If you like your worms in cans, open this one.